OSBM continuously monitors state revenue collections and, in collaboration with the Fiscal Research Division (FRD) of the NC General Assembly, develops forecasts of state revenues in support of the Governor’s statutory and constitutional responsibilities as Director of the Budget.

Revenue Sources

Although North Carolina’s General Fund is supported by numerous revenue sources, the individual income tax (53%) and the sales and use tax (31%) together provided more than four of every five dollars of the $22.7 billion in anticipated General Fund revenue for fiscal year 2016-17. Other significant tax revenue sources include the corporate income and franchise taxes (6.4%), excise taxes on alcohol and tobacco products (2.7%), and the insurance premium tax (2.1%). The General Fund also relies on non-tax sources of revenue, including fees, investment income, some types of fund transfers, and judicial settlements, which account for nearly 4% of all anticipated General Fund revenues in the current fiscal year.

Revenue Trends and Projections

Like the state’s economy, North Carolina’s General Fund revenues have grown at a moderate average pace of roughly 3.3% per year since bottoming out in fiscal year 2008-09 after a sharp decline during the Great Recession. Unlike the steady growth in the state’s economy since 2009, however, growth in General Fund revenues has been more volatile, due in part to actual and anticipated changes in tax policy at the state and federal levels. The revised consensus forecast for February 2017 anticipates year-over-year General Fund revenue growth of 2.3% in FY 2016-17, which is $553 million more than originally budgeted. For the 2017-19 biennium, the consensus General Fund revenue forecast anticipates 2.2% growth in FY 2017-18 and 4.3% growth in FY 2018-19.

Current-Year Revenue Collections

Through the first two quarters of the current fiscal year, net General Fund revenue collections are above the level anticipated by OSBM and FRD in May 2016. Tax revenue collections are 3.1% above the second-quarter target of $9.99 billion, with better-than-expected collections in all three major sources of General Fund tax revenues (individual income taxes, sales and use taxes, and corporate taxes). Non-tax Revenues are roughly on target, leaving total General Fund revenue collections 3.0% above the second-quarter target. The better-than-anticipated revenue performance through the first half of the year was a major factor underlying OSBM and FRD’s revised consensus General Fund forecast, which anticipates $553 million in overcollections in the current fiscal year. Based on the experience of prior years, however, most of the uncertainty in annual revenue collections is in the second half of the fiscal year, when most individual and corporate income taxpayers file their annual income tax returns. OSBM and FRD will revisit the revised consensus forecast for the current fiscal year and the next biennium in May 2017.